You are here

New Zealand dollar slides, stung by new tax on home investments

Monday, May 18, 2015 - 07:00
NZGDP150518.jpg
The New Zealand dollar fell across the board on Monday after a new capital gains tax on residential property investments raised speculation that a cut in domestic interest rates may be possible in the coming months.

[WELLINGTON] The New Zealand dollar fell across the board on Monday after a new capital gains tax on residential property investments raised speculation that a cut in domestic interest rates may be possible in the coming months.

The kiwi slipped 0.5 per cent to a session low of US$0.7425 after the government on Sunday said that income gained on New Zealand residential properties sold within two years of purchase would be taxed at up to 33 per cent.

The new tax is intended to cool soaring property prices in Auckland, the country's largest city, and follow additional mortgage restrictions for Auckland investment properties announced by the Reserve Bank of New Zealand last week.

Traders said the new tax and tighter lending rules may pave the way for the RBNZ to cut interest rates later this year if they succeed in lowering record-high house prices, which have long been a headache for the central bank.

"(Yesterday's announcement) gives added credence to the fact that the RBNZ doesn't have to hike, it adds to the rate cut call," said Tim Kelleher, head of institutional sales at ASB Bank, which expects a rate cut in September or October.

The kiwi stumbled against the Aussie, yen and other major currencies. The Aussie climbed around 0.7 per cent to an intraday high of NZ$1.0820, and gains against the kiwi supported the Australian dollar against the US dollar at US$0.8044, up a touch from late last week.

Further losses in the kiwi were limited by a sluggish US dollar, which was sold across the board late last week after another weak run of economic data raised concerns about the country's economic recovery.

Market participants expect the Aussie to extend gains and edge up towards US$0.8060 on Monday, boosted by weakness in the greenback, while the kiwi saw immediate technical support around US$0.7420, roughly the 23.6 per cent retracement of its sell-off since late last month.

But the kiwi remains vulnerable as markets price in a roughly 50 per cent chance of a rate cut next month. Analysts say further indications of easing inflation and slowing growth may stoke such speculation in the coming months, knocking the kiwi towards US$0.7200.

REUTERS